2015 pay pinch to be 2016 punch if sequester not lifted

Military folks will see compensation packages pinched in 2015 under a deal struck this week by House and Senate negotiators finalizing pay and benefit changes in the fiscal 2015 defense authorization bill.

But the compensation pinch in 2015 could become a more hurtful punch starting in 2016, the armed services committees warn, if the new Congress fails to rollback defense spending cuts of $50 billion a year still mandated by the Budget Control Act and its “sequestration” cutting tool.

As expected, the Jan. 1 military pay raise will be capped for a second straight year at 1 percent versus 1.8 percent to keep pace with private sector wage growth. But House negotiators have persuaded senators to soften provisions for dampening stateside housing allowances and for raising beneficiary co-pays on drug prescriptions that are not filled on base.

More dramatic, multiyear hikes in drug co-pays embraced in May by the Senate committee have been replaced by a standalone $3 increase for non-active duty beneficiaries filling prescriptions at retail outlets or through the Tricare mail order program.

The co-pay increases take effect as soon as the bill is signed but Tricare likely won’t be ready to implement before Feb. 1. At retail outlets military family members and retirees would pay $8 instead of $5 for generic drugs and $20 versus $17 for brand name drugs on the military formulary.

Non-active duty beneficiaries using home delivery would pay $16 instead of $13 for a three-month supply of brand name drugs on the formulary, and $46 rather than $43 for non-formulary brand names.

Since March Tricare has required older beneficiaries, for at least one year, to get non-generic maintenance drugs filled by mail or on base. The new defense bill would make this pilot program permanent, not just for the elderly but for all non-active duty beneficiaries needing medicine for chronic conditions. Also, brand name drugs not on the formulary would be available only by mail order. These changes are to take effect Oct. 1, 2015.

The House-Senate deal also softens a plan to cap Basic Allowance for Housing (BAH) increases over three years until service members residing off base pay 5 percent of average rental costs out of pocket. The compromise would pare BAH rate hikes in 2015 only 1 percent. And BAH rate protection will shield current recipients from the change until they move to their next stateside assignment.

In a “joint explanatory statement” on the compromises reached, the House-Senate conferees warn that heftier compensation savings sought by the Joint Chiefs will be revisited after the Military Compensation and Retirement Modernization Commissions delivers its recommendations in February, particularly if planned defense budget cuts are not eased.

“If sequestration-level budgets remain in effect for fiscal 2016 and beyond, DOD will need to make painful cuts and achieve substantial savings across its entire budget [to] avoid an unacceptable reduction in readiness,” the statement says. “The Chiefs have urged us to take all action necessary, including compensation adjustments, to avoid such readiness impacts.”

The conferees also clarify that their deal on BAH and drug co-pays for 2015 “preserves the option for Congress to achieve most of the savings” sought by the chiefs in pharmacy co-pays through 2024 and also “full savings” they sought in housing allowances, if needed to protect readiness.

The Congressional Budget Office told conferees the chiefs’ more aggressive plan on drug co-pays, which the Senate committee had approved, would have cut personnel costs by $13.2 billion over a decade. Those 10-year savings are only $2.3 billion under the compromise, leaving almost $11 billion in added savings that their committees will eye again next year.

CBO also estimated that the deal lowered savings in BAH over 10 years from $9.8 billion down to $2.1 billion. Again, that will be $7.7 billion in potential savings that will be needed if the new Congress, with Republicans in control of both chambers, fails to ease sequestration starting in 2016.

Rep. Harold “Buck” McKeon (R-Calif.), House committee chairman who also is retiring, won praise from military associations for blunting the compensation curbs senators had endorsed. But the committee’s top member, Rep. Adam Smith (Wash.), suggested a false victory. It was Congress that forced sequestration on the military, he said, yet it refuses “to help the department deal with the consequences of that idiotic policy.”

Days before the defense bill deal was struck, Army Gen. Martin Dempsey, chairman of the Joint Chiefs, told a Washington D.C. defense forum that readiness is falling to the lowest point he has seen in 40 years of service. He blamed it on defense budgets being squeeze between mindless sequestration and lawmakers’ refusal to curb manpower costs.

Last February the chief had unveiled a plan to save $11 billion in compensation over the next five years through a series of military pay caps, by ending Tricare Prime, the military’s managed care benefit, by sharply raising various Tricare fees and by slashing commissary funding over three years by more than two-thirds, which would devalue shopper discount.

“But we're not getting any of them,” Dempsey complained.

The defense bill, which the House and Senate hope to pass by mid-December, allowing no floor debate or amendments, contains scores of other personnel provisions, to be detailed here in future columns. But two are relevant to the Joint Chiefs’ pursuit of compensation reforms.

One will block a Jan. 1 pay raise for flag and general officers. The second accepts half of the $200 million first-year cut to commissary funding sought by the chiefs. It was the House committee that backed the $100 million (7.5 percent) hit to the Defense Commissary Agency after DeCA signaled it could absorb the cut without impacting shopper savings or services. But a resale industry official told us cuts to commissary staff or store hours are still likely.

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